Before Dhaka Collapse, Some Firms Fled Risk

Wal-Mart and Levi Strauss Were Among Retailers That Backed Away From Bangladesh's Multistory Garment Factories

ENLARGE

Relatives mourned a garment worker who remained missing more than a week after the collapse of the Rana Plaza building outside Dhaka. On Thursday, bulldozers removed concrete and debris from the site.
Reuters

The garment factories producing clothes in the building that collapsed last week in Bangladesh were running a risk that some companies in the retail industry had already decided was too great to bear.

Before the Rana Plaza building crumbled last week, killing 430 people in the country's worst apparel-industry accident, retailers including Wal-Mart Stores Inc. and Levi Strauss & Co. were backing away from factories run by multiple tenants in buildings erected several stories high. Safety experts say those buildings pose bigger risks than low-slung factories with single tenants.

The death toll raises questions about why those factories continued to attract business from other apparel companies, and has revived a debate within the industry about the safety of such facilities. Sears Holdings Corp., which hasn't been linked to clothes made at Rana Plaza, said it is re-examining the dangers posed by multilevel factories or factories operated by multiple owners.

ENLARGE

A man removing Joe Fresh-labeled clothing from the area last week.
Bloomberg News

The rethinking, if it takes hold, could be a blow to many of the garment manufacturers in Bangladesh, where a scarcity of open land and power made multistory factories particularly common. Already, the country is losing garment orders after a spate of industrial accidents and political turmoil, in a trend that could hobble its economy and open the doors for other Asian exporters to boost their sales to the U.S. and Europe.

Statements by companies since the Rana Plaza collapse have made clear that even before the accident outside the capital city of Dhaka, Western brands were getting cold feet over Bangladesh. Safety concerns grew after a fire in December at Tazreen Fashions Ltd.'s factory outside Dhaka killed more than 100 people.

The Walt Disney Co., the world's largest licenser, told licensees in March that they could no longer manufacture its branded merchandise in Bangladesh. The move was part of a larger effort to shift the production of Disney-branded goods out of what it considers countries where factories run a high-risk of safety problems, including Bangladesh, Pakistan and Venezuela.

Industrial Disasters in Asia

Track some deadly factory fires, building collapses and other industrial disasters in Asia over the past three decades.

Boxes of sweatshirts with Disney characters bound for Wal-Mart stores were found at the Tazreen factory. Wal-Mart, Disney's authorized licensee, said a supplier had moved the products to Tazreen for storage. Both Disney and Wal-Mart said the companies hadn't authorized the movement of products to the factory.

Other retailers, such as Target Corp. and Nike Inc., have also said they have reduced the number of factories they use in Bangladesh. Regular political protests and strikes ahead of elections next year have further disrupted business, and buyers have begun redirecting orders to neighboring India, Bangladeshi exporters said.

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The Bangladesh Garment Manufacturers and Exporters Association estimated last month that the $20 billion-a-year industry had lost $500 million in orders in part to Indian rivals.

To attract foreign investment and help foreign firms avoid garment-export taxes, Bangladesh's government set up special economic zones in Dhaka, the capital, and surrounding cities. The incentives worked: The number of garment factories rose to 5,400 in 2012, up 30% since 2005, according to the Bangladesh manufacturers' association.

But greater Dhaka has become one of the world's most populous and fastest-growing megacities, driving up the price of land and straining the country's electrical, power and gas systems.

The shortage of land and a propensity for flooding in Bangladesh has prompted many factory owners to build up, rather than out.

Not all multistory factories are unsafe, of course. Those built to permit specifications and building codes are lower risk, retailers said. "Some multilevel structures are perfectly safe, and others are unsafe," said Luca Biondolillo, a spokesman for Italian retailer Benetton, whose brands were found in the rubble of the Rana Plaza. The company said a one-time order at the factory was completed weeks ago and that none of the companies there is a supplier now.

But it can be difficult to know whether the rules were followed. Many factory owners who couldn't afford to build new buildings because of the high cost of land and limited access to utilities converted hundreds of residential and other buildings into makeshift garment factories to keep up with the demand from Western retailers, labor groups say. Additional floors often are hastily added without reference to fire and other building codes, monitors say.

Buildings are further taxed by generators that are needed to cope with frequent power outages, retailers and auditors said. Rana Plaza, for instance, operated with five large generators. Shortly before the building collapsed last Wednesday, there was a power cut, and all the generators started up, according to the initial findings of a government inquiry committee.

The Tazreen factory fire and other disasters have highlighted the risks of using such facilities. Levi Strauss no longer produces garments in multistory facilities that have factories with different owners in the building. The company wants to be sure safety policies are consistent throughout the building, a spokeswoman said.

Wal-Mart said that in 2010 it began asking its suppliers to phase out production in factories housed in multistory buildings that were shared with other factories or commercial shops. But following the November fire at Tazreen, where clothes made for Wal-Mart were found, the retailer issued a stricter set of supplier guidelines on safety requirements for Bangladesh.

Suppliers found to manufacture goods bound for Wal-Mart in multilevel buildings shared with other factories or shops are now deemed high risk and are removed from the retailer's list of authorized suppliers, the company said in a letter to suppliers in January.

"There is a need for heightened attention to the risks specifically related to building structure in Bangladesh," Wal-Mart said in the letter.

J.C. Penney is also phasing out the use of factories within multi-use buildings, a process that is expected to be completed in Bangladesh later this month.

Garments make up 80% of Bangladesh's total exports, and other Asian producers are aiming to benefit as buyers look elsewhere. A.S. Sakthivel, chairman of India's state-backed Apparel Export Promotion Council, said he hoped India would be able to draw about $1 billion in garment orders away from Bangladesh. Cambodia also sees an opening.

"With the recent incidents, it's possible that external pressure will be so high that they'll have to shift," said Ken Loo, secretary-general of Cambodia's Garment Manufacturers Association.

But Bangladesh is the region's lowest-cost producer by far, exerting a powerful draw. The minimum wage in Bangladesh is $37 a month, compared with $61 in Cambodia, and $150 in coastal industrial provinces of China, according to Sourcing Journal, a trade publication that compiled the data using government information.

As a result, the cost of cutting and making a dress shirt is $1 to $1.50 in Bangladesh, compared with $3 to $4 in China, according to industry sources.

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